So here we go:
1. Don't believe anything you read or hear. Rather, go right to "why is this company, government or person really saying what they're saying." Example. You're watching one of the finance channels and a guy working for one of the gazillion equity firms comes on and says, "we're heading into a double-dip recession." Reality: he or his firm may well be short the market and simply wants to create panic. To be a successful trader, you need to shed all things "polyana" from your upbringing and way of thinking. The markets aren't the place to see the glass "half-full." Understand that everyone lies. Just because the SEC is trying to monitor and enforce - companies, governments and investment dudes lie all the time. That would include not telling/withholding/omitting things to the public they just don't want anyone to know. Many companies know that, at ,the end of the day, even if they get busted - the fine will be pocket change. And of course, politicians (you know, the people who are supposed to be doing things to help us little people have a better life) lie for a living - and really couldn't care less if the someone loses his house or defaults on her car payments. Just as long as they get re-elected. Duh!
2. Mastering trading tip #1 allows you to pick stocks with "eyes wide open." However, what to choose? Easy. Listen for the "distant drum beat of the markets." What's that you say? When you're watching CNBC or Bloomberg or reading your favorite newspapers, finance writers etc., pretend you're living in the jungle- and you know you need to listen far into the night for that faint drumbeat in order to know what's really about to happen between the tribal leaders. In the financial markets, this is an equivalent example: the "herd" is short the market circa 2008. The markets are tanking. For months, all the talking-heads on the tube and the newspaper headlines are barking about financial armageddon. From September 2008 heading into January 2009 it seems like there's no end in sight. The herd is short everything, arrogantly so. Then you hear one of the big hedge fund guests being interviewed by yet another finance channel doomsayer host, leading the guest with stuff like, "Don't you think we're heading into another Great Depression?" He (or she) is the ten thousandth idiot to ask the same question. You can almost hear the Hans Zimmer-esque doom and gloom music playing in the background as the question is being asked. But, casually and softly, this hedge fund guy says, "you know, we're starting to close out our short positions." Of course, as 99% of the market participants, news pundits and average joe-Americas have bought into the Great Depression hype- they have become immune to what this hedge fund guy is really saying. The herd is now blinded by its own "pack-mentality" - and it barely pays the dude any mind. But, the smart trader is listening for that faint drumbeat in the distance, and is hearing instead, "Ah, the big traders are going to reverse course and go long this doom and gloom market." And, if this one large hedge fund trader is saying this on national TV- you can be sure there are quite a few more big kahunas doing the same thing. Which leads us to tip #3.
3. But everything in 2007/2008 - sub-prime fiasco, the market crash, the tanking economy, etc., - was real wasn't it? Wrong. Remember tip #1. Don't believe anything you hear or read. Believe only that, in the world of finance, multi-nationals and governments, the worst human behavior possible is always in play - regardless of how many people get hurt, collaterally. What was really going on in 2007/2008 was simply the ongoing global trading game in play; which controls the markets and world economies - manipulating everything that's "trade-able" for a profit. That would include the big banks, large private trading firms and government (sovereign) traders all over the world being deep in it all. This isn't "conspiracy theory." It's the way it is. And if you don't wake up from your little white picket fence way of thinking, you cannot become an effective trader. Now, if you want to know where the deep action is at all times- you will have to learn the derivatives markets inside out - and especially the credit default swap markets (CDS). The CDS markets will always be a barometer of who's about to stick it to who on the grand stage (and in general). You'll find yourself thinking, "Wow, they can't possibly be trying to do something as "f'd up as this." Oh yes, Virginia- they are. And they will. BTW- you will have to gauge your own morale compass here as well - as you are going to be making money off the terrible things large traders and governments do. Therefore, it's time for tip #4.
4. You cannot fight the big kahunas, nor the big game they play. So you may as well join them as they do whatever it is they do in the financial jungles of the world. Read their messages from the distant drum beats they play, and get in early on THEIR side- else you are eventually going to get crushed. Never fight them or believe you are going to beat them. Ride their wave until your start to hear another set of faint drums beginning to beat far off in the night- and start GETTING OUT of your previously profitable positions. Switch as the big guys switch, before the herd. Use the herd to your advantage- they're always the last to know.
5. Learn everything you can about short, mid and long term market-trigger events. The relationships between currency and commodity manipulation, Treasury yields, debt trading in general and import/export trade are incredibly important to staying engaged on a day-to-day basis. Don't just follow gold up because the world economies are in chaos. That's too simplistic. Sure you'll make money initially, but you may also get trapped by your own arrogance. Besides, you can double and triple your money in incredibly short periods of time by learning to trade like the big boys do, rather than make snail profits on gold. You need to understand and follow where the big kahunas park their big money - and why, and for how long - as part of the big game they play. And then, everything will make sense, On any given trading day you can then get in and out with confidence- and a profit.
Happy trading kids...and remember- you don't need to trade every day. Take a break from the ticker once in a while. Get some objectivity. Stay in tune with the markets, but don't sit at your computer like some degenerate gambler. Wait and watch and listen. And, when you spot that perfect trading storm heading your way - THEN you trade...
GT McDuffy
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